28 May 2004
President Vladimir Putin's state of the nation address could be called the "speeding troika" speech. His vision may well be that of Gogol in the classic "Dead Souls":
"Russia, are you not speeding along like a fiery and matchless troika? Russia, where are you flying? Answer me. There is no answer. The bells are tinkling and filling the air with their wonderful pealing; the air is torn and thundering as it turns to wind; everything on Earth comes flying past, and looking askance at her, other peoples and states move aside and make way."
It is no wonder that nobody knows Russia's final destination because in a free society, that depends on the hundreds of daily decisions taken by each of Russia's 146 million citizens. But as long as the "wonderful pealing" accompanies people living their lives in liberty, the future is bright.
In his speech, Putin pledged all his efforts to produce a growth rate of 7 percent per year. On a fundamental point he is right: That is the only way to substantially reduce poverty and provide prosperity to all. To achieve that growth he needs to unleash the creative strengths of the people. Not only could he leave an economy twice its current size, but his legacy could also ensure that in 20 years' time, the economy could quadruple in size. That would unleash the forces needed to achieve an economic and political status consistent with Russia's extraordinary cultural achievements.
Now, the key element for that vision to be realized is for Putin to understand that economic freedom under the rule of law is the road to high growth. He needs to implement the structural reforms necessary for the transition to a modern free economy and do that in a coherent way. As someone said, the "third way" (that is, middle-of-the-road reforms) only ensures that a country remains a Third World economy.
For Russia to grow at self-sustaining rates of 7 percent per annum for two decades, the guiding concept should be to eliminate the system of state-sanctioned privileges that prevails throughout the economy.
A key reform is that of the bankrupt pension system. A reform that allows Russians to have real ownership and control over their pension contributions and to invest them in the safest possible way, both at home and abroad, sends a powerful signal about the openness of the country's economy and the government's commitment to capital being permitted to flow into and out of the country (something that would itself encourage greater foreign investment in Russia). Done properly and accompanied by advances in related areas -- such as capital markets regulations, creation of a mortgage market allowing more labor mobility and protection of minority shareholders' rights -- pension reform can stimulate a virtuous cycle of investment and growth. But the most important impact of pension reform is the paradigm shift it produces by creating a country of property-owning workers who favor free markets and free minds. Put simply, the rise of "worker capitalism" would turn Marx on his head.
Russia's task is awesome and daunting, but it is possible. Structural reform is actually much harder in rigid societies such as those of France and Germany (where the single currency may provide the opportunity and catalyst for much-needed radical change in such areas as labor and pensions). Of course, Russia should be granted full membership of the WTO now, and one day could even be a reinvigorating force inside the European Union.
The main obstacle to reform, however, may be the opposition from special interests whose privileges would end under a competitive and transparent market economy. Thus, some business leaders may oppose real competition and the fair and even application of taxes, some unions a more flexible labor market, and some bureaucrats may obstruct the needed drive toward a smaller, smarter state.
Overcoming those obstacles requires a coherent economic program and direct appeals to the people. By clearly communicating the purposes, costs, and benefits of the reforms, and by emphasizing that the reforms aim to eliminate privileges not for one group but for all equally, the government could make it difficult for special interests to prevail. Once the heretofore opaque process of policymaking is exposed to the scrutiny of media and debate, it becomes very difficult for entrenched interests to demand monopolies, protection and subsidies from the state.
The president was re-elected with more than 70 percent of the vote, has the political support of the State Duma, and, as I can attest after participating in a brainstorming session with Putin in Moscow last month, he is open to new ideas to solve Russia's old problems. He should also reach out, even to those who have opposed him on the grounds of wishing for faster liberalization.
The future will weigh more heavily than the past. Putin can begin creating that future by sparking a freedom revolution and thereby drawing on the energies of all Russians. Moreover, information-age technological advances continue to expose Russian society to new ideas, products and innovations, making central control of the economy increasingly difficult. And the country will benefit from its immense resource wealth and well-educated population once the proper policies and institutions are in place. Those, of course, include the rule of law, freedom of expression, the protection of all civil liberties and a strong stance against any kind of terrorism.
Fast economic growth and poverty reduction would make Putin a good president, maybe even a very good one. But to be a great one, he should also announce that he will follow the lead of the Founding Fathers of the United States and serve only two terms, the only antidote for the dangers of too much power for too long; and promise to abide by Alexander Pushkin's admonition:
"Oh, kings, you owe your crown and writ/To law, not nature's dispensation/While you stand high above the nation/The changeless law stands higher yet."
What Russia needed at the beginning of the 20th century was not a Bolshevik Revolution, but an American one. The tragedy is that it got a Lenin instead of a Jefferson. Putin now has the historic opportunity to anchor the new Russia in the values of freedom and equality under the law. If he does this, the citizens of Russia may well consider him the founder of modern Russia.
We will see.